HOW TO MAKE A FACTORY CONSTRUCTION QUOTATION
HOW TO MAKE A FACTORY
Advise on suitable investment plans
Investment consulting is the first and very important stage, especially for foreign investors who come and construct factory in Vietnam for the first time. During this period, DELCO research on investor needs, factory requirements as well as industry standards, product characteristics, etc. With experience in industrial construction, DELCO can give detailed consultation for investors.
FACTORY DESIGN – BUILD
Accompanying investors to build high-quality factories
FACTORY DESIGN – BUILD
Accompanying investors to build high-quality factories
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In the field of construction, there are many ways to classify types of contracts, depending on the characteristics of the project, the form of pricing or the relationship between the contracting parties as general contractor, main contractor or subcontractor…. This article analyzes the types of general construction contracts in depth.
According to characteristic of project
– EPC General Contractor Contract (Engineering, Procurement and Construction General Contractor Contract):The general contractor is responsible for the technical design, construction drawing design, the supply of equipment and materials, the construction works, the selection and supply of technological equipment for production, the installation and technology transfer, trial run and handover to the investor.
The value of the EPC contract is often very large, including many items, many different work items are difficult to control. In addition, each factory uses its own machinery and technical lines, requiring a professional view of experts, to ensure safety as well as quality in production. The EPC general contractor must be a knowledgeable contractor who understands the technology and production lines of the factory. After installation, they must ensure technology transfer to the investor, guarantee warranty and maintenance services for all types of machines that they provide. The EPC general contractor is assigned almost with full authority, so the risk is quite large.
– Design – Build General Contractor Contract: One of the most common types of contract, in which, the general construction contractor is responsible from the design stage to the construction stage of the project, excluding the supply of machinery line and equipment for production.
In order to carry out a construction project with safety, quality, and schedule, from the stage of actual survey to design, construction, construction supervision and completion, handover to the investor, the Design – Build general contractor requires strong human resources, a team of experienced, highly specialized engineers and technical staff, and good project management capacity.
– General construction contractor contract: The contractor performs the construction of works, work items or mechanical and electrical construction items, etc. according to the available designs.
According to form of contract price
– Package contract: fixed contract value, unchanged throughout the process from bidding, contract performance to handing over the volume of work within the scope of the signed contract, unless there is a design update or change from the owner. The investor assigns all costs to the contractor, regardless of the market price fluctuations or the shortage/excess of materials. The general construction contractor must carefully balance all costs, estimate all risks, ensure the implementation of the project as committed without any additional costs compared with the agreed contract and design.
- Lump Sum Turnkey contract is a typical type of package contract. Lump Sum Turnkey contracts are usually signed by the investor with the Design – Build General Contractor: the general contractor participating in the project from the actual survey stage to the basic design, detailed design, factory construction and M.E.P construction, even providing smart factory solutions if the investor requires. The contract value is a package, and does not arise during the implementation of the project. This contract can help reduce project management pressure for the Investor, saving a lot of management cost and time.
–Fixed unit price contract: is applied in the case that at the time of signing, due to many reasons, it is difficult for the two parties to determine the exact workload of the contract. Each work item will be agreed on a fixed price. The investor must pay the cost equal to the volume multiplied by the agreed unit price, accepting the risk of incurring costs due to the adjustment of the workload during the construction process.
– Adjusting unit price contract: In case the construction schedule is too long, it is difficult to determine specific costs due to volatile market factors, etc., an adjusting unit price contract is the most appropriate choice. The contract value will be equal to the adjusted unit price according to the signed contract, multiplied by the corresponding work volume.
Types of contracts that DELCO often signs: Design – Build General Contractor contract, Lump Sum Turnkey Contract
Depending on the characteristics of the project and the requirements of the investor, the two parties can discuss and choose the appropriate type of contract.
There are many factors, from objective to subjective, affecting the cost of factory construction: Legal regulations change, market prices fluctuate, etc. Here are the factors that directly affect the factory construction quotation that investors should pay attention to.
The smaller the factory scale, the higher the construction unit price. Because small or large-scale factories all include fixed items with similar costs: fire protection and fighting system, infrastructure system, underground tanks, internal roads, fences,… These items are performed independently, the number of workers, the cost of supplies and materials for each item must be ensured for quality construction. It is impossible to reduce the number of workers or cut costs because of the small factory. Therefore, the smaller the factory scale, the higher the construction unit price per m2, and vice versa, the larger the factory scale, the more optimal the unit price will be.
The more complex the factory design (more details, more requirements for structures to withstand large loads, large machine systems and power-consuming lines, etc.), the more time it takes to construct. A difficult project will require a team of experienced and skilled engineers and construction workers who can offer the best and most optimal construction methods. Management costs as well as labor costs for complex designs will be higher than for conventional projects.
Specific requirements of the manufacturing industry
The manufacturing sector and industry-specific requirements are also factors that affect the cost of building a factory. Electronic factory will have very high requirements for static electricity so the construction materials are usually high-grade materials such as epoxy anti-static paint or vinyl tile. Factories in the field of food processing and pharmaceuticals have strict requirements on temperature and humidity. The construction of infrastructure, floors, drainage, ventilation, etc. of the factory must meet GMP, HACCP/ISO 22000 standards. Therefore, the construction cost of these factories will be higher than that of conventional factories.
Requirements on construction materials
60% of the factory construction cost is determined by the construction materials of the project. Same as building materials, but there are many brands suppliers to choose, many categories to consider: high-grade materials, medium-quality materials but cheap, etc. Many investors are quite careful in choosing construction materials, so the factory construction quotation depends a lot on the investor’s requirements.
Requirements on progress
Factories construction usually takes place in a short time, 3 to 6 months on average. Sometimes because of an expansion or renovation project right on the premises of the manufacturing factory, it has to be constructed without affecting production, or for some other reason, the construction time needs to be further shortening, increasing night work, urgent progress, …. This requires very high efforts from the construction contractor, both in terms of human resources, machinery and methods of organizing construction on the construction site, and at the same time push the factory construction cost higher than the normal project.
Besides, the too long construction time also gives rise to many objective risks: market price, construction resources, etc. The longer the construction period, the greater the project management costs, and may increase construction investment costs.
Therefore, a reasonable construction schedule will help investors save construction costs. The appropriate construction schedule is when the contractor calculates the overall progress of the project based on the progress of using materials and labor, moving materials and labor between work items in the project smoothly, maintaining a stable construction progress, avoiding pooling of manpower and materials at the same time.
Geological factors directly affect the construction cost of the factory foundation. Geological survey will show the depth of pile pressing to lay the foundation, that reach the soil layer that able to bear the load over time. The weaker the soil foundation is, especially the areas near the river with the thick mud layer, the deeper the pile foundation must be, the higher the cost of drilling and pressing piles, constructing the factory foundation, improving or reinforcing the foundation.
Experienced general contractors, with objective and relatively accurate assessments of the geological conditions of each region, will be a reputable factory building consultant for the investor.
Construction contractor’s ability
Each contractor will have different construction capabilities, different construction plans and methods, different internal quality management processes, leading to different construction quotes.
General contractors with experienced technical team and good project management capacity, the construction quotation may be higher than other contractors, but at the same time the quality is also commensurate with the quotation: construction works on schedule, helps the factory to stabilize production and can save operating costs, maintenance, warranties and upgrades costs later.
To meet common construction standards, a factory construction quote needs to include the following basic items:
Ground leveling cost and cost of temporary works
This is one of the initial costs of the project, including:
– Leveling the soil, sand, removing organic grass on the surface, leveling the construction site,
– Construction of temporary works (site gate, security house, warehouse, temporary fence, etc.)
– Constructon of auxiliary works (construction road, electricity and water supply)
– Temporary works on site for living and operating (if any)
Cost of construction of work items
The basic quotation items include:
1. Main construction works
Steel structure work
Water proofing work
Stone masonry work
Roofing / Wall metal cladding work
Door and window work
Interior Finishing work
2. External works
Fencing and Gates work
Storm drainage system
3. Electrical works
MV Power Incoming System
Main Feeder System
Cable ladder & trunking
Lighting, socket system
External lighting system
Telephone and Lan
Public Address System
4. Mechanical works
Domestic water supply system
Domestic drainage system
Domestic waste water treatment system
Air conditioner system
Other utility system (Air-compressor system, dust filtration system, etc.)
5. Fire fighting and Fire arlarm and Lightning rod system
Inside pump room
Fire fighting system
Fire alarm system
Exit & Emergency light
Lightning rod system
Smoke Ventilation system
A factory construction quotation including all basic items is one of the criteria for investors to evaluate contractors. Full quotation of basic items, no reduction in workload, will ensure the quality of factory construction.
In addition, depending on the characteristics of the project and the requirements of the Investor, DELCO can deploy additional items:
Connect electricity from the electrical cabinet system to the machine system and line, test the machine and hand it over to the investor.
Constructing infrastructure and providing smart factory solutions, connecting the entire auxiliary machinery system of the factory (air compressor, boiler, chiller, ventilation and air conditioning system, etc.)
The following are particularly important items in factory construction. To ensure the safe and efficient operation of the factory, investors should not change technical standards or reduce volume to save cost.
– Pressing the foundation pile:
For every industrial project, the foundation is an extremely important item and should be paid the most attention. The factory foundation needs to be done with the correct technique to ensure the solidity and durability of the entire construction.
The foundation piling is an item that cannot be cut in terms of volume, quality, or cost savings. The number of piles and the depth of pile pressing in each industrial factory project may be different, depending on the construction site location and the geological characteristics. Especially for factories in the field of production that need high precision (precision mechanical factory, printing factory …) the foundation pile-pressing items must be calculated more carefully, ensuring the stability of the machine areas, and ensuring the accuracy of the production process.
– Factory structure; covering structure
Industrial factory structure, covering structure needs to be carefully and accurately calculated before installation, the more methodical and standard it is, the more solid and durable it will be, ensuring the maintenance of safe and efficient production activities.
The industrial factory structure is composed of a system of columns and frames that are closely linked together, capable of bearing forces, and have the effect of supporting the roof system above, ensuring the stability of the factory during production process.
The cover structure plays an important role in protecting the equipment inside the factory from being affected by the outside environment. Depending on the production model of the factory, different structures will be installed, as well as suitable for the climate and weather there. Structures covering industrial factories include: walls (brick walls, solid slab walls, reinforced concrete walls, etc.); roof (corrugated iron roof, fibro-cement roof, etc.); Windows; door; When constructing these items, it is necessary to pay careful attention, especially the connection between the covering structures, the fringe, the window keel to prevent the impact from the outside environment such as rain, sun, wind, etc. dust etc. can directly affect the production inside the workshop.
– M.E.P System
Responsible for supplying power to the production activities of the whole factory, the system of substations, electrical cabinets, electrical cables is considered the most important part, the key to the safe and stable operation of the factory and high efficiency production. Therefore, investors must always pay attention to the basic requirements from design to construction of the MEP system:
+ Using reputable substation brand,
+ Design and construction of electrical cabinets with enough space to operate,
+ Electric room must have fan/air conditioner
+ In the construction of electrical cabinets, make sure the cable connectors are solid, mark the phase wires carefully with colored tape to avoid confusion…
+ The design and construction of the electrical and underground electrical cabinet system needs to calculate the backup plan for the factory so that when it needs to expand, it doesn’t have to change the whole system, which waste a lot of time and costs.
+ The M&E system must be easy to operate, repair, maintain and upgrade. When handing over the project or replacing the manager, the factory manager can easily search for documents, manipulate and operate the electromechanical items in the factory conveniently.
– Fire prevention and fighting system
Item of fire and explosion prevention and fighting is one of the particularly important requirements in a construction works, to ensure safety for people and property. The design – construction of fire prevention and fighting system in accordance with regulations, standards and fire safety conditions directly affects and determines the appraisal, approval and acceptance of fire prevention and fighting, and issuance of construction permits of the works.
Vietnam Fire Prevention Standards TCVN 2622:1995 specifies and details the technical requirements of fire protection items for houses and works, including the following important main items:
Building materials are classified according to their fire specifications (flammability, flame spread on the surface, ability to create smoke and toxic substances) to establish the necessary requirements for fire protection for structures, rooms, houses and buildings.
Construction components (smoke pipes, smoke prevention valves of the air distribution system, doors, windows, barriers …) must meet fire resistance requirements.
Fire-blocking parts (fire-blocking walls and fire-blocking floors) are made of quality fire-blocking materials, have good integrity and insulation under the direct impact of flames, and are used to prevent fire from spreading from a fire compartment to other rooms.
Classification of Stairs and stairwells used for escape, fire ladders for fire fighting and rescue.
The fire resistance level of a building, fire compartment and room is defined as the fire resistance level of its building components.
After completing the construction of the work, the Investor must request the Fire Police Agency to inspect and approve the minutes of acceptance of the construction work. The project needs to ensure the elements of design, construction to fireproof materials, etc. in order to be approved and accepted by the authorities for fire prevention and fighting in accordance with the Vietnamese law.
The cheapest quote is not necessarily the best solution. Price is always accompanied by quality, so to optimize costs with high quality construction to meet the requirements of investors is always a complicated problem. There are many ways to optimize quotes, the most important are 2 stages: design and construction.
Factory design stage
A good design plan is the one that optimizes the construction area, is convenient and limits modifications during the construction process, and reduces the costs of renovation and repair, arising later. The layout plan for machinery, production lines, and the factory’s electrical system also needs to be carefully calculated, both economical and scientific, easy to operate and easy to repair. The coherent architectural plan, reasonable and accurate structural plan, will help the investor save both cost and construction time. At the same time, the design plan must also be suitable for each investment stage of the investor, making provision for additional plans to expand production and upgrade the factory later in the most convenient way.
The more decorative elements in a factory design, or a combination of different types of covering materials, ledges, exterior edges, etc., the more time and cost is spent on construction materials, and at the same time, it is difficult to maintain. Investors should harmoniously balance the requirements of aesthetics, production safety, and durability of the factory while choosing a design option.
The construction progress of the factory usually takes place very quickly, so each incident affects the overall schedule as well as the investment cost of the project. Therefore, the process of preparation, construction methods and construction schedule must be done carefully, as detailed as possible.
Construction methods and schedule must be managed on large items and logically arranged, in the sequence of works from pressing piles to foundation, body works, to finishing works such as plastering, paving,… Making details to each item, each task will help the investor easily manage, avoid confusion and incur unnecessary costs during construction
In addition, the construction progress needs to be calculated based on the plan for using materials and labor, while ensuring the technical break time of each item: brick wall construction, plastering, wall painting, etc. It is advisable to maintain a stable construction progress, avoiding pooling of manpower and materials at the same time because this may cause waste resources and costs.
A good construction plan and method will save a lot of time and costs for both the investor and the construction contractor, but requires a lot of effort and experience and capacity of the contractor. An experienced construction general contractor who can advise on both factory design and construction methods is always an option that should be considered by the investor. With Design – Build general contractor, the general contractor is both a unit that understands each design detail and a unit that conducts construction. Therefore, the construction will be synchronous and easy to manage, reducing risks and saving costs for investors.
Each contractor will have different construction capabilities, different construction plans and methods, different internal quality management processes, leading to different construction quotes. However, the quotes are usually only 3-5% difference on average.
If a contractor quotes too cheaply, investors should be careful, it is likely that the construction quality, safety and stability of the factory production will be affected. Here are some types of “cheap traps” that investors should keep in mind when appraising bids:
Reduction in workload: the contractor did not fully demonstrate and implement the construction items in the factory design and quotation.
Reduction in technical specification: selection of materials – equipment with low specifications, low standards; the design does not ensure the light and ventilation for the factory, etc.
Poor design, not enough information, not enough construction methods, no backup plan for possible risks when the factory is in operation.
Contractors do not have strict quality and cost management processes, leading to incorrect cost estimates.
Poor quality construction leads to annual maintenance & warranty costs, after-construction service costs are very large.
Deploying a specific and transparent process, with clear and detailed requirements for information collection documents, will help investors most accurately assess the ability of the construction contractors.
During the bidding period
The validity period of factory construction quotes is the validity period of bids. According to the provisions of Clause 42, Article 4 of the Bidding Law, the validity period of a bid is the number of days specified in the Bidding Documents and is counted from the date of bid closing to the last effective date specified in the bidding documents.
The investor must ensure that until the contract is signed, the contractor’s bid documents are still valid. Article 12 of the Bidding Law stipulates that the maximum period of validity of bids and dossiers of proposals is 180 days.
During periods of fluctuating construction materials market prices, it is up to the contractor to propose different validity of quotations, or propose price adjustment terms in the contract.
According to DELCO’s experience:
When the market price of construction materials stabilizes, factory construction quotes are usually valid for about 3-4 months
During the volatile construction materials market, quotations are usually valid for less than 2 months.
After signing the factory construction contract
After the factory construction contract is signed, the investor and the contractor confirm the contract performance according to the signed quotation. The construction quotation will be valid until the parties fulfill their contractual obligations and must be consistent with the project’s implementation schedule.
DELCO accepts to perform fixed unit price contract.
Contracts that DELCO participates in have unit prices that fluctuate depending on the scale of the factory, design options, construction methods, etc. Although the Investor does not require a package contract, but in our quotation, DELCO always tries to calculate to give a package unit price, optimizing costs for investors.
The factory design unit price in the market is fluctuating on average from ………… VND/m2 – ………… VND/m2 or higher, depending on the complexity of the structural, architectural, M&E design, etc. and the requirements of the investor’s manufacturing industry. The larger the factory project, the more economical the design unit price will be.
In the Design – Build General Contractor Contract, DELCO will waive all factory design costs for the investor.
The construction unit price is fluctuating on average from …… VND/m2 – …………. VND/m2 or higher, depending on the project scale, manufacturing industries, design options, construction methods, etc.
In particular, factory projects in specific fields such as pharmaceuticals, food production, electronics, etc. have high requirements for clean rooms, must meet strict standards of the manufacturing industry, so the construction unit price is also higher than other types of factories.
In addition, factory projects constructed on areas with weak geology, requiring a lot of costs for foundation treatment, foundation construction, etc. also push up construction unit prices.
DELCO also make construction quotation for projects that already have designs.
DELCO will advise on design – construction based on available designs, offer overall plans, optimal solutions that saves construction costs, management costs, operating costs and ensure benefits for the Investor.
Investment Consultant Unit is a professional who knowledgeable about construction investment, knowledgeable about Vietnamese laws and investment policies of each locality, is responsible for providing consulting services to investors on legal procedures and documents to conduct a construction investment project. For foreign investors who come and construct factory in Vietnam for the first time, hiring an Investment Consultant is a reasonable choice.
The average cost of hiring an investment consultant accounts for 5 – 10% of the factory construction quotation, usually including initial investment consulting, project planning, etc. This cost is not expensive compared to the benefits it brings. A good investment consultant can help investors save time and optimize many types of costs such as: land rental costs, tax exemptions and reductions according to local investment incentives, costs for application for construction permits and other legal procedures… At the same time, a good consultant unit can help investors come up with an effective investment plan, accurately visualize the technical standards of the factory, helping to save design and construction costs later.
Project management costs is expenses for implementation, construction supervision, project management from the stage of survey, preparation until completion and handover of the project, putting the factory into operation.Project management plays a very important role in the construction industry. This work directly affects the overall quality and progress of the project.
Hiring a project management unit will help the investor have a stricter and more objective project management process, optimize the construction quality of each item, reduce the error rate in the construction process, ensure the highest quality for the project and save the cost of repair and maintenance later.
In order to properly evaluate and choose the best project management unit, investors should implement a transparent and clear evaluation process, research and collect information from many sources. Investors should choose a unit with professional qualifications in construction, which can help accurately assess the capacity of contractors, suppliers, evaluate design documents, propose appropriate construction methods, etc. and help investors balance investment efficiency among options.
An independent construction supervision – consulting unit will help the investor closely control the construction process, manage the construction schedule, control construction quality, ensure the consistency between the drawing and actual construction, make timely adjustments if necessary, etc. Independent construction supervision unit, on behalf of the investor, will control incurred costs, grasp the overall progress, minimizing errors, consulting and regularly reporting the construction process to the investor.
Based on the capacity of experienced and responsible general contractors who always comply with firm legal obligations in the contract, implementing regular monitoring, inspection and reporting processes with the investor, it is unnecessary to hire an independent Construction Management Supervision unit.
At DELCO, we have an internal quality control team, constantly checking the construction quality and progress of each item in the project. From 2022, DELCO updated online quality controlling technology into projects, allowing the investor to monitor the quality of the work site continuously, from anywhere through high-definition automatic construction photography technology and cloud computing technology. It is thanks to the transparency in weekly reporting and the construction quality of DELCO that in the FDI factory projects we have been implementing, most investors do not require an independent Construction Management Supervision unit.